Vodafone says full Essar buy against India law: FT

Singapore, Apr 5: Vodafone says Indian law bars it from owning all of the 67 percent of Hutchison Essar it plans to buy in a controversial .1 bln deal, the Financial Times reported on Thursday.

In a letter to the Indian finance ministry obtained by the newspaper, Vodafone acknowledged that it would be breaching a 74 per cent ceiling on foreign direct investment if it attempted to take direct ownership of all of the stake in the mobile operator.

Vodafone has agreed to buy a two-thirds interest in Hutchison Essar from Hutchison Telecommunications International , a unit of Hong Kong tycoon Li Ka-shing's Hutchison Whampoa , but an Indian foreign investment regulator has delayed approval of the deal.

Hutchison Telecom owns 52 per cent of Hutchison Essar directly, with a further 15 per cent stake held on its behalf by companies owned by two Indian nationals, over which it has call options, the FT reported.

Vodafone is planning to replicate these shareholder and accounting arrangements. The 15 per cent stake held by Asim Ghosh, Hutchison Essar's managing director, and Analjit Singh, chairman of healthcare group Max India, does not count towards the foreign ownership ceiling while it is in their hands, according to the newspaper.

The rest of the 74 per cent quota is filled by Essar, an Indian conglomerate that owns 33 per cent of Hutchison Essar and has structured its stake so that 22 per cent is held offshore. This leaves Vodafone unable to own directly more than 52 per cent, the FT reported.

The FT said Vodafone had pointed out that its statement had put its interest in Hutchison Essar would be 52 per cent. The proposed shareholder structure was legal, the company added.

Reuters